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Tuesday, May 29, 2012

Step 3 - Preparing For US Internet Gambling - Buy, Build Or Partner?

The US casino operators and Indian tribes have all been banned from exploring and experimenting with US Internet gambling and the European Internet gambling businesses have all been prohibited from taking US wagers. So what do this companies do to prepare for and enter the impending opening of the US Internet gambling market?

Many of these companies have already announced partnerships and acquisitions to accelerate entrance into the space. What are the consequences of these decisions and are there any other options for both parties to work together and gain a foothold in the newly emerging market?

Answers to this question can be narrowed down to a few general options, with vastly different consequences, advantages, disadvantages and hybrids that blend and offset the potential risk of any one course of action. So what makes sense and why?

Buy - The buy decision can be an extreme decision because it can involve large sums of money and a single commitment to potentially a single offering and single company. However, the buy decision can mean an instant capability to host an Internet gambling property and to take wagers immediately once Internet gambling legislation is approved. Some of the casino oriented companies have purchased social/casual gambling companies to understand the US market as it exists today and in anticipation that this sector will act as a bridge between freemium and "real" Internet gambling.

On the positive side a casino operator that purchases an Internet focused gambling company may or may not have to immediately integrate its operation with an Internet offering and each of the entities could remain focused on their particular silos. The down side of this decision is that knowledge transfer and integration across the land based and Internet divide may be hard to bridge, if at all, and decisions/strategy that require a knowledge of both business may be difficult to scope properly.

After purchasing an Internet gambling company a plan must immediately put into place to retain employees of the purchased company. The purchased company may loose staff leaving the purchasing company with an asset that fails to meet its potential and does require the parent company to build expertise anyway.

Partner - The partner or joint venture approach has become popular with a number of casino companies announcing proposed partnerships with Internet gambling companies in Europe. This is a quick way to enter the US Internet gambling market with product and operational expertise leaving each party to focus on their respective business expertise.

However, the partner approach has the same issues that any joint venture has. Who is in charge? What entity creates the overall strategy? Who needs whom and for what purpose? How is the cost and profit distributed? And does either entity learn the business of the other?

The fact of the mater is that if Internet gambling does occur in the US and it sticks then a joint venture will be hard to maintain and only one of the entities will actually have benefited from the partnership. Also, the casino companies can not escape the requirement to become experts in Internet gambling. Eventually, this bill will become due and they will have to invest to stay in the game.

Build - In a perfect world building your own Internet business from the ground up would be idle. The company would own its IP and have the ability to change the platform based on market conditions. Unfortunately time may not be on your side and speed to market will be important. The build option might be an answer if the company where to build some components and licence others.

The positive side of building is that one company owns it, drives the strategy and can decide to use other vendors as needs arrive. The challenge is that the company that builds the business does take on the expense of building and maintaining the business on all levels, i.e. marketing, technology, personnel, etc. It also means the company must come up to speed really quickly in a business sector they know little about.

Hybrids - I am sure we will see hybrids combining build, buy and partner to address the overall US Internet consumer gambling space. It is unlikely that a US casino will find a social, casual, mobile, casino, poker, sportsbook. back end processing, etc. solution under one roof. This of course will make things complicated for everyone involved and raise the stakes, cost and risk of success in the US Internet gambling space even higher. However, it is inevitable if a casino wants to offer a complete product offering for its players.

In conclusion, there is a proper solution for a company and most likely no one solution is the right one for all casino companies. There will be hybrids and there will be changes to the mix of solutions. The key takeaway is that whatever solution chosen understand what the pros and cons of those solutions are for your company. A company may be able to recover from a bad decision. However, given how fast things may unfold it is unlikely that a bad decision will not have adverse consequences and perhaps loss of market share. Understand your organization; its strengths, weaknesses, expectations and aspirations. Mix and match based on that understanding.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes about online games and their impact and integration into iGaming and E-commerce environments. Kevin is a frequent speaker at online game events and conferences in Asia, Europe and the US. Kevin and his Gameinlane team are currently working with online gambling, social gaming and e-commerce companies integrating social gaming with online gaming operations and integrate game mechanics into e-commerce applications.

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